Genomic Health, Inc. (NASDAQ:GHDX) Q3 2018 Results Conference Call November 6, 2018 4:30 PM ET
Emily Faucette - Vice President of Corporate Communications and Investor Relations
Kim Popovits - Chairman of the Board, Chief Executive Officer and President
Brad Cole - Chief Financial Officer
Brandon Couillard - Jefferies
Mitch Petersen - Barclays
Tyco Peterson - JP Morgan
Mark Massaro - Canaccord Genuity
Adam Wieschhaus - Cowen and Company
Good afternoon. My name is Carmen, and I'll be your conference operator today. At this time, I would like to welcome everyone to Genomic Health's Third Quarter 2018 Financial Results Conference Call [Operator Instructions]. As a reminder, this call is being recorded.
I would now like to turn the call over to Emily Faucette, Vice President of Corporate Communications and Investor Relations. You may begin your conference call.
Thank you. Good afternoon, everyone. And welcome to Genomic Health's conference call to review our third quarter 2018 financial results. Please note, a copy of these prepared remarks that we are about to make is available to download on the Investors section of our corporate Web site, genomichealth.com.
Before we begin, I'd like to remind you that some of the information presented today may contain projections or other forward-looking statements regarding future events or the future financial performance of the Company. These statements are based on management's current expectations and the actual events or results may differ materially and inversely from these expectations.
We refer you to our most recent annual report on Form 10-K and quarterly report on Form 10-Q as filed with the SEC, in particular, to the section entitled Risk Factors for additional information on factors that could cause actual results to differ materially from our current expectations. These forward-looking statements speak only as of the date hereof, and we disclaim any obligation to update these forward-looking statements.
Joining me today to make prepared remarks are Kim Popovits, our Chairman of the Board, Chief Executive Officer and President and Brad Cole, our Chief Financial Officer.
I'll now turn the call over to Kim.
Thanks, Emily. Good afternoon, everyone, and welcome. We continued to deliver record top and bottom-line results in 2018. In the third quarter, specifically, we generated 23% revenue growth and $13 million profit on a non-GAAP basis. Importantly, we achieved our 13th consecutive quarter of improved non-GAAP profitability. This strong performance reflects increasing global demand and revenue for the Oncotype DX Breast Recurrence Score test, continued adoption and growing reimbursement for the Oncotype DX Genomic Prostate Score and success in driving operational efficiencies across our business.
With three quarters of record results this year, we are raising our full-year 2018 revenue and net income guidance, and now expect to deliver approximately 17% revenue growth for the year, surpassing the top-end of our original full year revenue guidance of 15%. We believe we are well-positioned to continue accelerating adoption, reimbursement and revenue growth across our business in the near-term with the achievement of several recent milestones, which include positive guideline recommendations that demonstrate global support for the Oncotype DX Breast Recurrence Score test following publication of the landmark TAILORx results.
Specifically, NCCN updated its 2018 breast cancer guidelines, elevating Oncotype DX to its preferred category with a strongly considered designation as the only multi-gene test to predict chemotherapy treatment benefit for patients with node-negative early-stage breast cancer. In addition to this guideline inclusion with level 1 evidence for node-negative breast cancer, NCCN also elevated Oncotype DX into the chemotherapy treatment pathway for patients with micro metastases and for patients with up to three positive lymph nodes.
Guideline momentum also continued in Europe as the German Institute for Quality and Efficiency in Health Care, or IQWiG, concluded in its updated assessment of breast cancer gene expression profiling tests that only the Oncotype DX test has sufficient evidence to guide breast cancer adjuvant chemotherapy treatment decisions. As IQWiG's positive technical assessment informs G-BA’s official national reimbursement decision, we believe we are one step closer to gaining reimbursement for tens of thousands of breast cancer patients diagnosed in Germany each year.
Together, these new exclusive guidelines globally distinguish Oncotype DX from other genomic tests based on clinical evidence and the critical importance of predicting chemotherapy benefit. We continue to expect decisions from GBA, as well as NICE in the UK in the coming months.
Important reimbursement wins across our urology franchise, including Medicare’s final local coverage determination, or LCD, that will become effective in December for use of the Oncotype DX AR-V7 Nucleus Detect test for men with castrate resistant metastatic prostate cancer. As a reminder, of the 50,000 eligible patients in the United States, approximately 25,000 are covered by Medicare. In early-stage prostate cancer, Blue Shield of California established reimbursement for the Oncotype DX GPS test bringing the total number of U.S. covered lives to more than 100 million.
Importantly, we continue to make progress in our development of a sample-to-answer version of the Oncotype DX Breast Recurrence Score test on the Idylla platform with the successful completion of technical feasibility and the selection of validation study sites. We believe the development of this unique and highly scalable sample-to-answer IVD capability positions us for further long-term growth and diversification by accelerating access in key European markets where a localized solution is required; opening global access to emerging large markets, such as China, Brazil and India; providing us with a proprietary platform to build a menu of locally distributed tests to be offered through our global commercial channel; and facilitating broader collaboration opportunities with pharmaceutical companies seeking localized diagnostic solutions.
I will now turn the call over to Brad to provide further detail on our third quarter financial results and updated annual guidance. Brad?
Thanks, Kim. We are very pleased with our third quarter financial results, during which we delivered revenue growth above 22% in all of our key product lines, continuing the strong revenue growth throughout 2018.
As a reminder, effective January 1, 2018, we adopted the new ASC 606 accounting standard for revenue, using the modified retrospective method, which applies the new standard prospectively and does not impact prior years’ financial statements. Since the as-reported 2017 quarterly and annual financial statements will not be restated to reflect the new accounting standard, we have provided a supplemental financial schedule in the non-GAAP tables in our press release, reflecting an estimate of revenue as if the new standard had been applied as of January 1, 2017, which we will refer to as pre-ASC 606 adjusted figures in our comparative comments.
In the third quarter of 2018, total revenue was $101.3 million, an increase of 23% compared to the pre-ASC 606 adjusted revenue of $82.2 million for the third quarter of 2017. For the nine months ended September 30, 2018, total revenue was $289.5 million compared with pre-606 adjusted revenue of $248.2 million for the same period in 2017, an increase of 17%. In the third quarter of 2018, we delivered a non-GAAP profit of $13.3 million, an improvement of $12.2 million compared with the same period in 2017. These strong results mark our 13th consecutive quarter of improved non-GAAP profitability.
For the nine months ended September 30, 2018, we delivered a non-GAAP profit of $27.3 million, an improvement of nearly $32 million compared with a non-GAAP loss of $4.5 million for the same nine-month period in 2017. These strong non-GAAP net income results represent continued and improved operating leverage above our stated annual target of 40%.
Third quarter revenue growth of 23% was driven primarily by test volume, up over 10% compared to third quarter of 2017 to more than 34,810 tests delivered, and improved average selling price from reimbursement improvements and collection efficiencies, which had 13% impact on revenue growth. The increased realized price was boosted by PAMA pricing effective January and improved collection levels from process and system changes and enhancements implemented throughout the year. As payers require additional payment criteria, we have invested to meet the needs of these requirements and are seeing the results in improved average selling prices across product lines.
The third quarter revenue result of $101.3 million and 23% growth includes approximately $2 million of revenue from upgrading payers into higher revenue recognition portfolios as we continue to see strong payment performance. Without this year-to-date effect on third quarter results, revenue would have been $99.3 million and revenue growth would have been 20%.
I will now walk you through the results across each of our key product lines. U.S. invasive breast cancer revenue was $76.7 million in the third quarter of 2018, an increase of 24% compared to pre-ASC 606 adjusted revenue for the same period in 2017. Revenue was up 17% for the nine months ended September 30, 2018. The accelerated revenue growth in the third quarter was driven by increased test volume of 12% compared to last year as a result of the TAILORx presentation and publication driving further demand. We estimate an increase of 6% test growth based on these definitive 10-year results; test volume growth contributed half of total revenue growth.
CMS pricing has increased through PAMA, adding 3% to revenue growth and contributing to approximately 12% of total revenue growth; stronger ASP overall, a result of contract renewals and collection efficiency through process change and system enhancements, contributing 5% to revenue growth and to more than 20% of total revenue growth; and finally, upgrading certain payers to higher revenue portfolio rates on a year-to-date basis, a result of improved payment performance above their initial portfolio rate estimates. This contributed to approximately 4% to revenue growth, and to approximately 15% of total revenue growth. U.S. invasive breast cancer test volume increased 12% year-over-year in the quarter and 7% year-to-date.
Looking ahead to fourth quarter, we expect U.S. invasive breast cancer revenue to continue to grow in mid-to-high teens. International product revenue was $15.5 million in the third quarter of 2018, an increase of 22% compared to pre-ASC 606 adjusted revenue. On a constant currency basis, revenue grew 20%. International revenue increased 13% for the nine-month period ended September 30, 2018. On a constant currency basis, revenue grew 9%. Similar to the U.S., the TAILORx results have had a positive impact internationally. The number of international tests delivered in the third quarter of 2018 grew 6% compared with the same period in 2017 and represented approximately 25% of total test volume in the quarter.
Excluding Germany and Italy where we changed the ordering model late last year to require committed payment prior to accepting orders and the conclusion of certain studies for which we provided tests, international volume was up 15 % year-over-year in the third quarter. While these changes have impacted tests delivered as expected, we are seeing progress in both payer engagement and coverage. Looking ahead to the fourth quarter, we expect international test growth to be in the mid-to-high teens and revenue growth above 20%.
In U.S. prostate, our GPS test continues to contribute to strong test and revenue growth, increasing 15 % and 28%, respectively. GPS revenue of $6.9 million in the third quarter was equally driven by higher test volume and increased payments from qualified billable tests with Medicare and further coverage and increased payment from the private payers. For the nine months ended September 30, 2018, GPS tests delivered were up 24% and revenue grew 54%. It’s important to note that GPS revenue in the third quarter of 2017 included reimbursement payments from prior periods. When adjusting for this occurrence, growth would have been 70% in the third quarter of 2018.
Additionally, with our sales force expansion complete and the full team now in place, we continue to expect full-year GPS revenue growth above 50% and test volume growth to be approximately 24%. We believe we are continuing to lead the market for low and intermediate-risk prostate cancer patients using genomic tests for treatment decisions. And with the Oncotype DX AR-V7 Nucleus Detect test, finalization of the Medicare LCD is expected to have a positive impact on both test and revenue growth beginning in 2019. The final LCD coverage posted by Palmetto is expected to take effect in December once the notice period ends.
Gross margin was 85% in the third quarter. Moving forward, we expect our gross margin rate to be 84%, in line with our year-to-date gross margin rate. Cash and cash equivalents and short-term marketable securities at September 30, 2018 were $183.3 million, an increase of $53.7 million from December 31, 2017.
In the third quarter, non-GAAP adjusted EBITDA was $22 million. For the first nine months of the year, non-GAAP adjusted EBITDA was $52 million. Based on our strong performance during the first nine months of the year, we are raising our guidance for the year ending December 31, 2018; total revenue of between $389 million and $391 million, representing growth of 17% compared with 2017. In the fourth quarter, we expect revenue growth of between 17% and 19% or between $100 million and $102 million; net income, or profit between $26 million and $28 million on a GAAP basis, up from our original guidance of between zero and $5 million; non-GAAP net income of between $37 million and $39 million, up from our original guidance of between $14 million and $20 million.
As a reminder, our non-GAAP estimate excludes clinical and commercial development milestone expense and program cessation charges. Delivering revenue growth in our new guidance range of 17% for the full year will exceed our annual growth goal of 15%. Delivering net income in our new guidance range will exceed our operating leverage target.
Looking ahead to the fourth quarter and 2019, we anticipate increased spending associated with post-TAILORx sales and marketing activities and the ramp-up of our IVD product development. Additionally, as our business continues to diversify with multiple products, new testing platforms and expanding geography, we are investing in state-of-the-art systems to enhance order processing, test delivery and revenue collection, which includes; online ordering with automated prior authorization support and real-time insurance verification; central lab test result processing with maximum efficiency and quality; delivery of a best-in-class test report; and infrastructure to support a sample-to-answer platform for global markets.
Reflected in our 2018 financial results, we are seeing the benefits of these investments with consistent reimbursement traction, strong collections and greater internal efficiencies. Moving forward, it is our goal to leverage these capabilities to seamlessly integrate new products into our commercial channel.
I will now turn the call over to Kim to provide closing remarks.
Thanks Brad. At the beginning of the year we made a commitment to deliver near-term growth and increase profitability, with a focus on catalysts to drive further adoption and reimbursement of our portfolio globally.
With our third consecutive quarter of double-digit revenue growth and profitability, it’s clear our strategy is working. Furthermore, the achievement of several milestones laid out in January position us for further growth, including; presentation and publication of the landmark TAILORx study results that use Oncotype DX to precisely define the effect of chemotherapy for all early-stage breast cancer patients; achieving a 10% increase to our Medicare rate for the Oncotype DX Breast Recurrence Score test through PAMA market-based pricing; strengthened NCCN guidelines for both the Oncotype DX Breast
Recurrence Score and GPS tests; increasing reimbursement for our Genomic Prostate Score test;
international reimbursement traction with decisions in Germany and the UK expected soon; and the U.S. commercial launch and final Medicare LCD for the Oncotype DX AR-V7 test.
And certainly for us, the most rewarding milestone of the year is expected to occur in the fourth quarter and we deliver our one millionth Oncotype DX test, an impressive accomplishment, demonstrating Genomic Health’s pioneering impact in delivering precision medicine to cancer patients around the world.
I would now like to open the line for your questions.
[Operator Instructions] Our first question is from Brandon Couillard with Jefferies. Your line is open.
If we look at Germany, if you can help us understand how fast you think reimbursement can ramp there and what the process looks like in terms of getting each of the individual payers on board, and just remind us about the actual market size for the breast test in Germany?
Yes, we are expecting given the positive assessment recently announced that there will be a decision for public coverage later this year. The process happens pretty quickly once a payment pathway is established, so I guess we expect a decision later this year. And we would be offering that through all of the SIC funds who would have to grow to the new recommendation immediately, and it would happen pretty quickly. And we go a list price yet to be determined and yet to established. Eventually, a code will be assigned and the system will work more smoothly, and may look like a different price. But it should happen pretty quickly over two months following the decision.
Now, the size of the market is a quarter of the size of the U.S., or 30,000 to 40,000 patients if we can address all the indications that we have here in the U.S. And so the TAILORx study, which is being considered as node-negative only. We do have some volume in Germany in node-positive patients, but the coverage would be for node-negative patients initially. So it might be close to 30,000 patients.
And then just one quick one on AR-V7, looks like you've got the final LCD there, I guess late in the third quarter. Can you just update what you have penciled in for contribution from that test in the fourth quarter and how you think about the adoption and ramp of that product as you look out into '19 and the incremental revenue contribution from that test? Thank you.
Brandon, we don’t have much expectations for Q4 given that it should finalize in December, and that would turn quickly into revenue but there will be a limited amount of time to bill Medicare, so in our guidance, there is limited, if any contribution, from AR-V7. I'll just remind you that the market for AR-V7 is about 50,000 patients a year. We don’t have a price point yet for Medicare but that should be forthcoming in the next few weeks or month. Where we think the value-add is much like how we see and should be a price well above $3000, representing $150 million or so market opportunity in the U.S. We are the only test available. And so our expectations are significant but we haven't -- we are not ready to provide specific guidance on '19 until we get little more time under our belt with reimbursement in place.
Our next question comes from Jack Meehan with Barclays. Please go ahead.
This is actually Mitch Petersen for Jack. Appreciate the detail on the TAILORx volume benefit in the quarter. Is the third quarter consistent with what we should expect going forward? And I guess, how should we think about the sustainability of these tailwinds going into 2019? Thanks.
We think the fourth quarter will have similar growth rates. TAILORx has added, and as we said about 6 points to growth. We were growing in the 3% to 4% range before that. So a normalized growth rate is about 9% to 10% for Q3. There was an easier comparator a year ago. Q4 is a strong quarter generally for IBC on a sequential basis off the Q3 levels. We expect to see continued benefit from the TAILORx results which were…
And then on prostate, could you just provide some detail on the Medicare versus commercial mix of revenue in the quarter? And when you think about some of these new commercial contracts that are coming in place on the prostate side. Could you just elaborate on how the pricing is trending relative to your list price around $4,500? Thanks.
So the contracts, of which there are a number and many more to go, are well above $3,000. So, we would like to pricing -- price points for our GPS in the private market. I will remind you that the price for Medicare is just about $3000 and that is set to change in 2019 with the new PLA quote to be closer to our breast price. So pricing has been strong and coverage is starting to build. You'd asked something in front end of your question, on, the split between the two. Yes, we continue to see about 50-50 split on revenue. What we see this quarter was an acceleration in private reimbursement, so we’re seeing a little bit higher contribution from privates.
And then if I could just squeeze one more in. The pull forward of revenue in the third quarter of 2017 for prostate. Does that impacts volumes at all or is that simply a revenue headwind in the quarter.
That was simply a revenue benefit in the quarter. So my comments were normalized the quarter for about $99 million. Given that the new revenue standard has been in place for nine months and it took us and it's taking every -- all companies a number of months to identify what the payment trends are and to identify whether they've got the right revenue recognition rates in their system, we took the nine months to assess that and we've been able to determine that, because as I've commented, strong payment and collection processes or system enhancements are pulling through more revenue on an average selling price basis.
So we've been able to turn up the number of the payers on the front end recognition. And we just normalized that for year-to-date. So we have to book all of the test that are going to shift for the year-to-date, it's about $2 million effect in the quarter. So to put it simply, if you can book 90% of what you bill and if you've got nine months of history and 93% of what you bill, because with demonstrated your initial it was a little shy, you then have to record all that revenue to be getting paid at the higher level. So we did that across a number of payers. So we’re very pleased with the performance we’re seeing and the ability to pull that in.
Thank you. Our next question comes from Doug Schenkel with Cowen and Company. Please go ahead.
This is Adam Wieschhaus on for Doug. Thanks for taking my question. Maybe to piggyback on the last questions around HTT business. You noted that the ASPs is in that business tracked up in the quarter due to strong collections, contract renewals and upgrading the payer portfolios. So can you provide any color on how you're viewing the remaining opportunities for ASP increases in HTT through those aforementioned upgrades, contract renewals or perhaps other methods? And then maybe also on that question, how have payers reacted to the recent NCCN guideline update in terms of your competitive differentiation and your ability to gain price?
Well, there's a lot in that. So indeed IBC revenue in the quarter was strong, so a significant contribution to ASP. The first bit was why I just was describing there was about 4% of year-over-year growth that came from getting the portfolios right from the strong performance during the year. We have continued to see strong reimbursement in contract renewals and collection pull through from how our systems are set up identify new criteria and then collect off that criteria and then payment contributed 3%. So I think about the things that aren’t going to repeat. The portfolios are now where they need to be for these payers and has this effect in the quarter.
So going forward, there won't be an incremental acceleration from those. PAMA is in place. So in '19, there will be incremental acceleration through PAMA. So we think that Q4 there just still be higher revenue growth and test growth, because of these factors but if we go into '19 there'll be less differentiation between revenue growth and test growth in IBC.
And your question around the impact of NCCN guidelines, we are absolutely thrilled to have that exclusive differentiation. It's not really the impact that we're seeing that’s on pricing or payer coverage, because we have broad payer coverage already with payers. It really is on more ability for penetration, market share and really strengthening our performance there as we aim to reach all patients, not the 60% little bit north of 50% that we are reaching right now.
And then just switching to prostate, I am just trying to think about the impact of recent developments you have had in that business. I think you recently boosted your sales force to 50 reps and you recently received single reimbursement. Did either those impact Q3 or should we think about those as developments or tailwinds for 2019? Thanks.
Think of those as going forward. The reps were higher, July, August, it takes months certainly and couple of quarters for them to be fully effective. So we think we will start to see some effects in the fourth quarter and then more primary benefit will come in 2019 on both fronts, both CIGNA and the expansion of the field team.
Our next question comes from Tyco Peterson with JP Morgan.
This is Tejas on for Tyco. Just one quick follow-up here on AR-V7 traction once the LCD is in place. How should we think about you fitting that opportunity in 2019? Can you perhaps help us because you mentioned some of the upside drivers how you can go about penetrating that versus perhaps what might be a slow start out of the gates with a ramp in the back half of the year. Just trying book end the possibilities for next year for AR-V7 now that you have reimbursements in Medicare?
Well, I think it's a little early to giving ranges and possibilities. But clearly, we are delighted that the LCD is in place. Half the market is driven by -- is Medicare age eligible. So the revenue generation will come quickly much like it did in prostate with test volume. We do think it's important, an important driver of uptake will be that there's coverage in place. So privates will be important. So with enter the year with just Medicare. And so we don't think the other have the markets going to grow like the Medicare market could grow, but it’s going to take some time. So we'll be more prepared with a couple months behind us with coverage to have that discussion in February.
I just might also add on to that to keep in mind that that product will be sold by both our sales forces. So we have both the medical oncology sales force and neurology sales force on it, so a good field force.
And then just a follow up there on the breast cancer side OUS. Do you still expect the EAG recommendation to be in place or rather the reimbursement part of that to be in place by year-end, and the go forward Germany as well? Or is there a possibility here that despite the favorable recommendations that the actual coverage might be more of a 1Q '19 or 2Q '19 event?
I think all possibilities are possible. Given our experience with international reimbursement has been we eventually get it, but it takes time. And so again, we’re delighted, actually its positive GPS agreed to make some decision here in the fourth quarter, which we expect to be positive. Could it go into Q1? Yes. Could it go in Q2? We don’t think so. But yes, it could…
Even if they make a decision in December, the impacts will be next year. So we're not expecting any impact in 2018.
I mean, there it's an administrative process to finalize things regardless.
And then final one here for me, just on the outlook. You increased your revenue numbers here by $8 million to $9 million, but your net income went up by a lot more about $21.2 million or so. Is any of this related to perhaps a slight push out in your investment time line and the IVD development project that you have going on or perhaps some other business process enhancements? Or is it just good operating leverage this quarter and you're being relatively conservative in terms of your spending plans for the next few quarters? Just trying to get some sense around the leverage that you're seeing on the revenue line versus the net income line.
Yes, I think you made good observations. I think the primary driver of more income dropping to the bottom line and revenue growth is really the fact that in the first half of the year, we've already exceeded and we’re on track to exceed our guidance. We've had the efficiencies we’re hoping for. We’re coming to fruition, and revenue growth was beating our expectations, which is why the bottom-line was so much better as the first half of the year and that just continued into the third quarter. So it's primarily the cumulative effect of that. When we’re now adjusting our guidance late in the year, it's not so much investments we’re getting pushed out, although, we have a lot of investments to make. It isn’t obvious that we have been able to execute on all of them in that timeframe we would like to. So some spending has bit lighter than expected as well. But it's not been the primary driver.
Thank you. Our next question comes from Mark Massaro with Canaccord Genuity. Please go ahead.
Thanks for the questions and congratulations on the strong beat on top and bottom. I guess, my question is really around TAILORx. The volumes are the strongest I have seen in years. I know you guys did quantify the impact from TAILORx on volumes. But should we be thinking of maybe low double digits volumes as almost a pro forma growth rate as we contemplate our models into 2019? I am just curious as to what the duration of this uptake in volumes is from TAILORx.
Let me restate what we really think the volume -- baseline volume was this quarter. We have reported 12% growth in tests delivered. If you look back to the prior year and the comparative quarter, there was what we believe a hurricane effect and we had a pretty soft Q3 a year ago. We think that took about 3% out of third quarter of last year. So we think the 9% is the real apples-to-apples growth that we are reporting here. 6% of that we believe is from TAILORx. So we have been growing at 3% to 4% sans TAILORx data. So going forward, do we think we can be in the high single digits? Yes.
I think for a while we felt that way. I think we were signaling that in late '16 if TAILORx would come at ASCO in '17 that we would move into high single digits. And so I think that we're more comfortable there, Mark, than we are in the low double digits. But time will tell. And we have got a lot of work to keep the momentum going too. Certainly, there was a lot of attention paid to the result as there should have been. And I think we have to invest in programs and education and keeping people at the forefront to keep that momentum going.
And then just on the gross margin metric came in at very close to 85%. Is that a reasonable run rate to think going forward recognizing that you may be incurring some additional costs through that line into next year, especially on the IBD front?
I think that is a higher figure that we are going to put going forward. I'm thinking more like 84% for the year. Keep in mind though, as delighted as we are with the LCD approval for AR-V7 that we are in a situation of margins there because of the collaboration with Epic are significantly less on that product. So it will be a small contributor to overall revenue mix here, a significant contributor to growth we anticipate. But it will have a bit of a drain on gross margin rates given that the rate at gross margin there is going to be significantly less, that’s just one factor. The other factor is that 85% reported in these 90 days includes $2 million of year-to-date catch up on revenue. If you back that out, the gross margin rate isn’t 84.9%, but it's something 84.5%. So 84% is a more normal number. And then we've got to layer in AR-V7. And we are going to continue to invest in efficiencies and programs to generate higher ASPs and keep our cost under control. So we expect significantly good gross margin rates, but aren’t anticipating 85% for the reasons I just gave.
And then I know that your goal on the EBITDA line on an adjusted basis was to exceed $50 million this year. You have already done that plus $2 million -- $52 million through nine months. I know you have given the net income range. But where do you see yourself finishing the year on adjusted EBITDA?
Of $70 million-ish, we're at $52. Our implied Q4 non-GAAP net income range is $10 million to $12 million, and we have got about another $8 million a quarter of other non-cash items, such as depreciation, amortization and stock comp. So we reported $22 million. If we just repeat the $22 million for this quarter, we'll be at $74 million. So we’re pretty confident about $7 million of EBITDA.
And I might have missed this earlier, I hopped off. But can you provide any update on your expectations around additional commercial payer coverage decisions over the next couple of quarters?
You didn’t miss anything, because nobody asked that. We continue to expect like GPS, the prostate, we can traction this year. We expect to continue to have wins throughout 2019. And I would expect to have some progress with AR-V7 payers in the private market in U.S., and then there's international markets. So we comment on GBA, we expect the decision in fourth quarter and we maybe forcing us sometime late in 2019 to see some more progress in France as well. And Emily is reminding that NICE is updating their policy for renewal. We are confident that the included estimates should come out in the next number of months.
And if I can sneak one last one in, I guess, for you Kim. What does surprise you the most about the TAILORx decision in terms of the update? Could some of it be potentially bleeding into the international markets? And any surprises at all would be helpful as we think about modeling there.
I don’t know if I would say there's surprises. I think, maybe the surprise is how rapidly NCCN and moved to change their guidelines, the immediate impact we saw with IQWiG. We absolutely feel that we will have an impact on GBA of course. We think that NICE has taken pause with their original guidelines and taking a look at this and incorporating it. So it's very clear that those that are monitoring guidelines standard of care have taken the data and are making some pretty important decisions with it. We, I would say, anecdotally, very positive reception from customers. And I would also note that we haven’t even yet launched the new report. So that would be a year end focus for us.
We have built a new report that we think is going to simplify things for physicians. We know that one of the biggest push backs before addressing the question on the intermediate range group was from the very base of customers that where we can achieve the greatest penetration increase. So, just the early work that we've done with them, we’re seeing a big impact in movement there. So we believe that will continue launching a new campaign, launching a new report, we think San Antonio is going to be a fantastic meeting for us, doing a record number of programs. So momentum is strong and we’re just very encouraged with the positive feedback we’re getting.
Thank you. And we will now conclude the Q&A portion of the call. At this time, I would now like to turn the call back over to Kim Popovits.
Well, thank you for joining us today and always for your interest in Genomic Health. We'll look forward to seeing some of you next week at the Cannacord Conference and then as well in San Antonio in December.
And this concludes today's third quarter 2018 financial results conference call for Genomic Health. You may now disconnect.